Farm Lending Trends And Projections Are Troubling

That’s the consensus of the Congressional Oversight Panel, which released its “Special Report on Farm Loan Restructuring.” The report fulfills a mandate under the Helping

Advertisement

That’s the consensus of the Congressional Oversight Panel, which released its “Special Report on Farm Loan Restructuring.” The report fulfills a mandate under the Helping Families Save Their Homes Act of 2009 to analyze “the state of the commercial farm credit markets and the use of loan restructuring as an alternative to foreclosure by recipients of financial assistance under the Troubled Asset Relief Program (TARP).”

The panel’s report first examines the state of the ag sector and notes that, in general, it’s fared somewhat better than the broader economy. The balance sheets of farmers and ag lenders have remained relatively strong, though some parts of the ag economy, most notably dairy, are in crisis. Rural areas were generally less exposed to the housing bubble, providing some protection for rural community banks from the shock of the financial crisis, until more recently.

Recent trends and projections in farm lending are troubling. USDA expects net farm income to decline by 20% in 2009, which may reduce some farmers’ ability to repay loans later in the year, although the impact may be mitigated by an increasing reliance on off-farm income. Demand for direct operating loans from the agricultural lender of last resort, the Farm Service Agency (FSA), increased 81% over the last year, and demand for direct ownership loans increased 132%.

Congress asked the panel to examine the possibility of establishing a farm loan restructuring mandate for TARP-recipient commercial banks in order to prevent ag foreclosures. The panel looked at several existing programs: the FSA process, the Farm Credit System and the Home Affordable Modification Program (HAMP) as possible models for actions under TARP to aid farmers.

The report notes that the effects of any loan restructuring mandate for TARP recipient commercial banks could be limited, as TARP-recipient banks only hold about 10% of total farm real estate debt. That share could shrink when more banks exit TARP.

In addition to actions under TARP, the panel notes that Congress could also choose to help struggling farmers by creating a voluntary restructuring program, funded through TARP, and open to wider participation, or by expanding existing farm assistance programs to target assistance to struggling sectors.

The panel held a field hearing July 7 in Greeley, CO, to take testimony from local farmers and ag lenders – including USDA, the Farm Credit System and commercial banks – in order to gain a better understanding of farm credit markets. The full report, as well as testimony from the hearing, can be found at cop.senate.gov/reports/library/report-072109-cop.cfm.-- Ron Hays, Radio Oklahoma Network